Is the heading industry overheating and going through a phase of consolidation? This was a key question asked by KV Aviation's Bill Cumberlidge at the Aviation Finance Europe conference in London earlier today.
Cumberlidge questioned the strategy of new entrants and asked the panel whether the industry is moving towards a phase of consolidation, especially on 60 to 80-aircraft portfolios.
ILFC's SVP head of ILFC Europe, Middle East and Africa, Colin Bole said: "Lots of new entrants' business case is based on short term cash flows but this is an industry where you have to demonstrate long term values."
"Maybe we are looking at some consolidation," he added pointing out that the Amentum portfolio is still in the market as well as RBS Aviation Capital.
"We have about 250 lease terminations a year and our issue is more on transforming the portfolio of ILFC than managing aircraft exits from our portfolio," said Bole.
Cumberlidge questioned whether leasing companies are once again ordering too many aircraft. Bole answered: "In the case of ILFC, we are establising a fundation base with speculative orders. ILFC has 939 aircraft and 250 aircraft on order with good delivery positions on the A320Neo, 787 and A350s."
Bole argued that the operating leasing industry now accounts for 40% of the total aircraft fleet and that it will reach 45%-50% in the future. "The OEMs dont sell more than 20% to leasing companies," he commented.
"It is difficult to know what is going to happen among lessors but among the top lessors I doubt there will be any form of consolidation," he added.
Killian Croke, Partner at KPMG said that the value is in the existing portfolio but more importantly in forward orders. "A leasing company without a forward orderbook is a dead end," he commented.
Lease Corporation International CEO Crispin Maunder says the top 10 lessors represented 70% of the lessor's population in 1990 and about 65% in 2000. Today the top 10 lessors represent 52% of the total lessor population, according to him.
"Everytime there is consolidation, there is also de-consolidation at the other end," observed Maunder.
One delegate pointed out that none of the portfolio will be sold in their current form. "The Amentum portfolio will not be sold as advertised, nor RBS Aviation Capital or the Lloyds/HBOS portfolios. Residual values are under the water and aircraft are too high in the books to make sense."
One year on after the wave of new lessors entering the market, the market will see 'more sophisticated' financial institutions come in, according to another delegate. "As the industry matures and we reach the second part of the cycle, I see large banks participating along with insurance companies," he comments.